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Tesla, The birth of a new solar giant

ANALYSIS | It will be years before we know whether the renewables sector's first superstar CEO is on the right track, writes Karl-Erik Stromsta

The renewable energy industry has its first world-famous CEO, and his name is Elon Musk.

In the end, Thursday’s vote on Tesla’s $2.1bn all-stock takeover of SolarCity wasn’t even close. More than 85% of ballots cast by Tesla shareholders were in favour of the deal, and that doesn’t include Musk, the largest shareholder of both companies, who didn’t vote.

In combining SolarCity with its own electric car and battery businesses, Tesla is yoking together several of the most disruptive forces in the global energy market. The joint company’s formidable challenges and enemies seem outweighed only by its immense opportunities and fervent allies.

To fully grasp the clean-energy empire Musk now commands, and the challenges he will likely face, it’s worth a close look at the units that will operate under the Tesla banner.

US rooftop PV – big growth, big uncertainty

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For all its recent stumbles, SolarCity remains the dominant player in the high-growth US rooftop solar market. SolarCity’s 35% share of the residential PV market last year was more than three larger than that of closest rival Vivint Solar, and more than 10 times larger than number-three Sunrun.

The 870MW of PV panels SolarCity deployed in 2015 accounted for an astonishing 4% of all new US power-generation capacity, even amid ongoing booms in the wind, gas and utility-scale solar sectors.

Because SolarCity retains ownership of the vast majority of the PV systems it installs, it’s fast becoming a power generator of systemic importance. SolarCity-owned panels generated 2.5TWh of electricity last year, about the same amount as the world’s largest offshore wind farm, the 630MW London Array.

Meanwhile Tesla, whose market capitalisation is 15 times larger than SolarCity’s, plans to deliver 80,000 high-end electric vehicles this year, and half a million annually by 2018, when its $35,000 Model 3 is expected to be shipping in large volumes and its Gigafactory in full swing.

Tesla is already a major player in the blossoming energy storage market, having recently unveiled the second generation of its Powerwall and Powerpack battery systems, targeting homes and grid-scale installations. When the Gigafactory is complete, it will be the world’s largest lithium-ion battery plant (and, indeed, the single largest building).

We won’t know for several years whether Musk’s vision of integrating the production and sale of electric cars, solar panels and batteries makes commercial sense. We do know, however, that when people bring their new Tesla cars home and plug them in at night, they will see a sudden jump in their electricity consumption.

Considering Tesla owners are more likely than average to care about the environment, it’s not a stretch to imagine many will be interested in self-generating their fuel – especially if rooftop PV systems become as beautiful and cheap as Musk says they will.

There are many serious questions about SolarCity’s future, even as part of a much larger company. Tesla, of course, faces steep execution challenges of its own. Both companies are expected to swallow big full-year losses – again. 

Will the notoriously difficult rooftop solar business be too time consuming for Musk, who, among his many pursuits and responsibilities, is also chief executive of SpaceX? Will the financial markets continue to fund the joint company's growth plans?

Rooftop PV's potential 'unappreciated': Sunrun CEO

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How independently will SolarCity operate within Tesla? Will Lyndon Rive, Musk's first cousin, continue to lead the solar unit or will his role be diminished?

Will SolarCity’s 1GW PV factory under construction in New York prove a long-term advantage, as Musk insists, or an anchor around the company’s neck as global module prices plunge?

The distributed solar sector has won several important regulatory skirmishes in the US in recent months, but even in pro-solar states like California it’s clear that financial support for rooftop PV will fade away in the years ahead. And with Donald Trump set to move into the White House in January, the solar industry is unlikely to receive any new favours at the federal level.

The most important question is, will rooftop solar – whose major players have all taken a pounding this year – prove a good business to be in over the long run?

Only time will tell. But the world’s most famous renewables CEO certainly seems to think so.

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